Top Guidelines on Deferring Capital Gains Tax

In taxation, a capital gain results when you sell a non-inventory asset at an amount higher than its acquisition cost. If, however, you receive less than you paid for the asset, you will end up with a capital loss. Once a capital gain results, your tax authorities require you to report it. Depending on the tax bracket applicable in your case, your liability could amount to large amounts, and that makes it wise to find ways to defer or avoid them. Here are top 5 tricks for deferring capital gains tax effectively.

Ensure you own the asset for at least one calendar year before selling it. The purpose of this step is to pay capital gains taxes at reduced rates because the income tax bracket that will be used during the calculations will be much lower. It is possible to save at least 20 percent of the amount you are likely to pay today with this strategy.

If you sell investment or rental property; there is a legal loophole in place that allows you to defer capital gains taxes without worries. It applies when the proceeds from the sale of the said property are channeled back to the same type of investment within a specified period, which is usually 180 days. This exchange is usually complex, making it necessary to hire a taxation expert for the paperwork. A notable advantage of using this method to defer capital gains tax is that almost everyone who uses it always succeeds.

Deposit the sale proceeds into a tax-deferred or tax-exempt retirement fund. The trick here is to defer the payment of tax to a later date when a lower tax bracket will be in use. However, if the proceeds are substantial, it is advisable to use this trick in combination with another one because there are limits in place to govern the amounts that can be added to these accounts.

If you own a high-value asset, you can defer the payment of capital gains tax by handing it to a charitable trust so that they can sell it on your behalf. Charitable trusts are usually tax-exempt; and so, if they sell it for you, there will be no issue of capital gains tax to worry about. After the sale and for a particular number of years, the trust will pay a specific proportion of the asset’s cost to you. All amounts that remain are utilized for charity purposes.

You can defer the payment of capital gains tax if you have the ambition of educating your kids or grandkids. You just have to place the funds from the sale into a college savings account. A health savings account can also aid in your efforts to defer the payment of deferred tax. This account is primarily meant to cater for medical costs that may arise in the future and are tax-exempt. The exception, however, only applies if you withdraw the funds for medical and not other purposes.

Source: http://fooyoh.com/menknowpause_lifestyle_living/15322369/if-youre-selling-an-investment-heres-how-to-do-it-amp-what-to-do-next